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What’s Really Motivating Canadian Investors?

Posted in Development, Finance, Housing, Industry Trends, Newsworthy

What’s Really Motivating Canadian Investors?

MIAMI—It’s a Canadian capital invasion. Commercial real estate investors and developers—even Canadian banks—have a growing appetite to buy, build or lend against all asset classes in many American markets. Yes, what started out long ago with individuals scooping up residential properties in warmer US climates has become a full-blown CRE trend that’s gaining momentum faster than the winter snow melts across the border in springtime. Some Canadians are even jokingly referring to the US as “the 11th province.” caught up with Brian Ward, president of Colliers International’s Capital Markets group in the Americas, to get his take on what’s driving the trend in part one of this exclusive interview.

Brian Ward

Brian Ward Canadian dollars are flowing into the United States seeking commercial real estate investments. Has that activity increased or decreased since 2012-2013?

Ward: The flow of Canadian capital will continue to increase through 2014 as Canada suffers from the same issue as the rest of the world: too much capital seeking too little supply. From a macro perspective, the notion of international borders is disappearing when it comes to commercial real estate, and capital is moving around the globe in a manner similar to other “fixed income” investment alternatives.

This is driven by the flow of immediate information, global investors with local market presence and knowledge in each key market—for example, US private equity funds with offices in London, Tokyo, Moscow, Toronto—and reduced tax barriers in many markets. This is very different from past cycles in that the international capital coming into the US is incredibly well informed, with excellent operational expertise, or connections to the key operating partners required to execute on successful investments. What is driving the appetite among Canadian investors? Why US commercial real estate and why now?

Ward: Appetite is driven by capital flows, and the demand for prudent real estate investments. There may be some additional motivations, such as a recognition that the US dollar may continue to strengthen against the Canadian dollar over the next few years as we move into the next phase of our monetary policy. The US also appears to be showing more strong positive trends with employment growth and wage stability. What product types, specifically, are Canadian investors hungry for and why?

Ward: All major product types are on their radar, but clearly multifamily rentals and multifamily for-sale have been big on their list. I wouldn’t be surprised if this continues as Americans continue to move back into urban lifestyles, and away from the suburbs.

For example, when you compare Vancouver to Seattle, or Toronto to Boston in terms of the number of people living in the city, the US has a ways to go, but it appears there is a strong trend in that direction.

I also think Canadian investors are looking for stronger yields in relation to risk. Multifamily pricing has become very aggressive, and may start to cause investors to pause without a clear sense of rent growth.

However, the data suggests that even with current new supply, there is not enough product to meeting coming demand. For those that feel multifamily is too expensive, I would expect them to move towards yield opportunities in office, industrial, retail and hotels, to the extent value in those asset classes exists.

Story by: Jennifer LeClaire